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Harmonic Drive Systems

Harmonic Drive Systems 6324

ハーモニックドライブシステムズ
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Ichigo Omori Bldg, 7F 6-25-3 Minami-Oi Shinagawa-ku Tokyo, Japan 140-0013
https://www.hds.co.jp/
03-5471-7800
Summary
World leading manufacturer of Harmonic Drive® compact speed reducers mainly used in industrial robots and precision equipment.
Machinery
Key dates
2012-02-16
Coverage initiation
Full Report
2022-05-16
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Executive summary

Business overview

Harmonic Drive Systems is a manufacturer of mechanical components featuring compact precision speed reducer Harmonic Drive®, a strain wave gearing device, as its core product. In addition to producing and selling precision speed reducers with different mechanisms, such as the planetary gear reducers AccuDrive® and Harmonic Planetary®, the company sells mechatronics products that combine actuators and controllers. Its reducers, along with other devices such as servomotors and linear guides, are among the key devices used for precision positioning. To date, HDSI has accumulated production know-how, and there is no other manufacturer that can mass-produce strain wave gearings with the same precision and durability as HDSI, positioning the company as a global niche leader.

Key applications include industrial robots (54.0% of parent sales in FY03/21), semiconductor production equipment (11.4%), metalworking machinery (4.8%), motor gear boxes (5.4%), automotive parts (4.0%), and flat panel display (FPD) production equipment. Sales by region (by destination) are 59.7% to Asia including Japan, 26.4% to Europe, and 13.9% to North America. However, the company’s customers (industrial machinery manufacturers, etc.) sell products globally, and orders and sales tend to fluctuate in line with global capital investment trends.

The company supplies high value-added products as a global niche leader, and Shared Research estimates marginal profit ratio to be around 55% at the parent level. Since the capital investment cycle is more volatile than the overall economic cycle and the company generates a high marginal profit ratio, its earnings fluctuate significantly depending on capital investment trends. Its most recent peak performance was in FY03/19 with sales of JPY67.8bn, operating profit of JPY16.9bn, and net income of JPY11.6bn, all of which were record highs.

HDSI aims to boost demand for its products by proposing new applications to its main customers, while also developing applications for industries with demand cycles that differ from the general capital investment cycle. The focus markets for the near term include collaborative robots, healthcare, space, and animatronics.

Earnings trends

FY03/22 earnings results: HDSI reported sales of JPY57.1bn (+54.1% YoY), operating profit of JPY8.8bmn (roughly 10.1x YoY), recurring profit of JPY9.1bn (roughly 6.7x YoY), and net income attributable to owners of the parent of JPY6.6bn (roughly 10.0x YoY). EPS was JPY69.0. Although the company achieved an earnings recovery with both sales and profit increasing YoY amid higher sales (stemming mostly from stronger orders for reducers, mainly for industrial robots) and lower costs, OPM was limited to 15.3%. The company plans an annual dividend of JPY21.0 per share (versus JPY20.0 per share in FY03/21), for a dividend payout ratio of 30.4% (290.6% in FY03/21).

FY03/23 forecast: The company forecasts sales of JPY75.0bn (+31.4% YoY), operating profit of JPY13.0bn (+48.7% YoY), recurring profit of JPY13.0bn (+42.7% YoY), net income attributable to owners of the parent of JPY9.0bn (+35.5% YoY), and EPS of JPY93.5. The company sees sales reaching record high levels, based on higher demand for reducers and the current order backlog. HDSI also expects operating profit to be the second highest in the company's history, but sees OPM remaining at 17.3% owing to higher upfront costs associated with capacity expansion. The company forecasts an annual dividend of JPY29.0 per share (versus a planned JPY21.0 per share for FY03/22), for a dividend payout ratio of 31.0% (30.4% in FY03/22).

On May 21, 2021, the company announced a new medium-term plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn, operating profit of JPY15.0bn, OPM of at least 20%, and ROE of least 10%. Given that the company did not achieve the targets in its previous medium-term plan, partly due to US-China trade friction, it prioritized achievable forecasts. The company sees promising markets for its products as collaborative robots (co-bots), semiconductor production equipment, automotive components, surgical assistance robots, electronic vertical takeoff and landing (eVTOL) vehicles, and the space industry, in addition to FA robots, a long-standing market for the company. However, Shared Research expects this plan to be comprehensively updated in May 2022 to reflect the subsequently announced plans for expansion of production capacity.

Strengths and weaknesses

HDSI’s strengths include its core HarmonicDrive® product technology, the secular growth of markets for its products, and its solid financial position. On the other hand, the company’s weaknesses include volatile short-term sales trends, small batch production limiting growth, and limited ability to develop and market new products (see Strengths and weaknesses section below).

Key financial data

Income statementFY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
Sales21,08425,95128,27830,06954,34067,80937,48837,03457,08875,000
YoY16.3%23.1%9.0%6.3%80.7%24.8%-44.7%-1.2%54.1%31.4%
Gross profit9,11812,12213,28613,86725,70330,44612,00312,58322,426-
YoY23.7%32.9%9.6%4.4%85.4%18.5%-60.6%4.8%78.2%-
Gross profit margin43.2%46.7%47.0%46.1%47.3%44.9%32.0%34.0%39.3%-
Operating profit4,6687,0677,6187,81412,31616,624-1958668,74013,000
YoY35.9%51.4%7.8%2.6%57.6%35.0%--909.3%48.7%
Operating profit margin22.1%27.2%26.9%26.0%22.7%24.5%-0.5%2.3%15.3%17.3%
Recurring profit4,8237,5257,8307,95911,94617,1852361,3679,10813,000
YoY34.9%56.0%4.0%1.6%50.1%43.9%-98.6%478.2%566.4%42.7%
Recurring profit margin22.9%29.0%27.7%26.5%22.0%25.3%0.6%3.7%16.0%17.3%
Net income2,9944,8345,00219,7327,77711,322-1,0956626,6449,000
YoY52.7%61.5%3.5%294.5%-60.6%45.6%--902.9%35.5%
Net margin14.2%18.6%17.7%65.6%14.3%16.7%-2.9%1.8%11.6%12.0%
Per-share data (split-adjusted)
Issued shares FY-end('000 shares) 94,74994,74994,74994,74996,31596,31596,31596,31596,315-
EPS (JPY)32.752.854.6215.486.9120.5-8.76.969.093.5
Dividend per share (JPY)9.714.318.020.026.038.020.020.021.029.0
Book value per share (JPY)320.1395.7405.3600.51,035.31,082.31,011.91,068.81,026.9-
Balance sheet (JPYmn)
Cash and deposits9,05712,11712,87612,04029,42418,80619,55421,14219,901
Total current assets17,93023,21623,92327,73753,39444,88635,98838,11845,873
Tangible fixed assets5,8347,1469,80714,64521,30640,85345,50041,99243,968
Intangible assets17917718242,62343,58239,53935,79241,00340,436
Investments and other assets14,68418,90214,83811,78415,70612,71810,14718,91513,014
Total assets38,62649,44148,75096,788139,382142,872131,848140,028143,290
Accounts payable1,7422,1602,3082,6733,1623,5131,4732,4133,857
Short-term debt6228525215,21757269721,1082,270
Total current liabilities5,0797,1765,94523,93513,63015,9455,1287,95414,127
Long-term debt1564606414491,5291,7265,9915,22114,618
Total fixed liabilities3,0264,5843,91415,45317,03413,65020,00222,01430,306
Total liabilities8,10511,7609,85939,38830,66429,59525,13029,96844,434
Total net assets30,52137,68138,89157,400108,719113,277106,718110,06098,856
Cash flow statement(JPYmn)
Cash flows from operating activities3,6435,4956,4997,2269,23415,12210,9509,5559,882
Cash flows from investing activities-1,103-2,104-4,394-32,523-8,171-22,400-12,537-4,181-19,491
Cash flows from financing activities-5,591-738-1,38524,64817,494-3,2712,362-3,6128,124
Financial ratios
Total interest-bearing debt21874589215,6661,5861,7526,9636,32916,887
ROA (RP-based)12.8%17.1%15.9%10.9%10.1%12.2%0.2%1.0%6.4%
ROE11.0%14.7%13.6%42.8%9.7%10.6%-1.0%0.6%6.6%
Equity ratio75.9%73.3%76.1%56.8%75.4%76.3%77.2%73.5%69.0%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: EPS " data-candidates="[{"type":2,"companyId":null,"_id":"62622f47ff7cb5c862e6af3b","en":"EPS "}]" class="translated-term">EPS and dividend per share figures for FY03/15 have been adjusted for the 3-for-1 stock split that took place on October 1, 2014.
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.

Trends and outlook

Quarterly orders (parent)

Parent orders by application
By application (parent)FY03/21FY03/22FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4% of Est.FY Est.
Orders4,9845,1317,58612,94318,35721,51519,20813,072
YoY75.6%65.9%58.4%137.6%268.3%319.3%153.2%1.0%
Semiconductor production equipment6495758342,0062,6403,6893,6231,943
YoY238.0%76.9%100.5%189.9%306.8%541.6%334.4%-3.1%
Flat panel display equipment172162224298505614751501
YoY123.4%90.6%48.3%11.2%193.6%279.0%235.3%68.1%
Industrial robot applications2,7642,7654,2797,37710,84011,80810,7446,729
YoY218.1%136.3%99.5%208.7%292.2%327.1%151.1%-8.8%
Gear boxes (for electric motor manufacturers)318213399614959665757630
YoY70.1%9.2%-4.5%111.7%201.6%212.2%89.7%2.6%
Machine tools220248413415619730583483
YoY15.2%20.4%68.6%66.7%181.4%194.4%41.2%16.4%
Oil-drilling equipment41-------
YoY-46.1%-------
Automotive473503323308311,222458712
YoY-89.0%-12.7%11.8%-3.5%1,668.1%249.1%38.0%115.8%
Other7698161,1011,9001,9602,7822,2912,071
YoY-5.8%26.1%3.2%75.1%154.9%240.9%108.1%9.0%
Sales5,3594,6816,3867,8368,96510,05910,56711,527100.3%41,000
YoY-10.9%3.7%60.5%48.4%67.3%114.9%65.5%47.1%69.0%
Semiconductor production equipment6615007049111,4171,3871,5851,763
YoY-3.2%4.4%61.8%46.9%114.4%177.4%125.1%93.5%
Flat panel display equipment217158185209216251315415
YoY95.5%77.5%-7.0%-13.3%-0.5%58.9%70.3%98.6%
Industrial robot applications2,5872,4533,4444,6264,4985,0855,8895,767
YoY-7.7%15.6%132.1%86.9%73.9%107.3%71.0%24.7%
Gear boxes (for electric motor manufacturers)338279301401495517580608
YoY2.1%78.8%-0.3%20.4%46.4%85.3%92.7%51.6%
Machine tools259227347327374349418448
YoY-42.3%-21.7%32.4%25.8%44.4%53.7%20.5%37.0%
Oil-drilling equipment134-------
YoY44.1%-------
Automotive882323842755371,074473570
YoY-78.7%-45.3%23.1%-8.3%510.2%362.9%23.2%107.3%
Other1,0728291,0181,0831,4261,3951,3041,954
YoY-4.8%-9.7%11.7%7.7%33.0%68.3%28.1%80.4%
Source: Shared Research based on company data
Parent orders by product
FY03/21FY03/22
Q1Q2Q3Q4Q1Q2Q3Q4
Orders
Speed Reducers4,0864,1986,51011,38616,47618,98916,91611,312
(Domestic)3,3513,2245,1918,02613,51914,61313,7808,849
(Exports)7359741,3193,3602,9574,3763,1362,463
Mechatronics8979331,0841,5571,8802,5252,2911,760
(Domestic)5705886128231,1001,1101,114905
(Exports)3273454727347801,4151,177855
Total4,9845,1317,58612,94318,35721,51519,20813,072
(Domestic)3,9213,8115,7958,84914,61915,72314,8959,754
(Exports)1,0631,3201,7914,0943,7385,7924,3133,318
Sales
Speed Reducers4,3973,9225,4416,7017,7868,9749,44010,079
(Domestic)3,3433,2064,2385,1665,5507,1967,7537,736
(Exports)1,0547161,2031,5352,2361,7781,6872,343
Mechatronics9627599451,1351,1791,0841,1261,447
(Domestic)611492555696654656687823
(Exports)351267390439525428439624
Total5,3594,6816,3867,8368,96510,05910,56711,527
(Domestic)3,9533,6984,7925,8616,2047,8538,4418,559
(Exports)1,4069831,5941,9752,7612,2062,1262,968
YoY
Orders
Speed Reducers97.2%70.0%64.6%159.7%303.2%352.3%159.8%-0.6%
(Domestic)128.6%86.1%92.1%141.2%303.4%353.3%165.5%10.3%
(Exports)21.3%32.0%5.4%218.2%302.3%349.3%137.8%-26.7%
Mechatronics16.9%50.2%30.1%46.6%109.6%170.6%111.3%13.0%
(Domestic)-9.1%36.7%10.7%18.6%93.0%88.8%82.0%10.0%
(Exports)133.6%80.6%68.6%99.5%138.5%310.1%149.4%16.5%
Total75.6%65.9%58.4%137.6%268.3%319.3%153.2%1.0%
(Domestic)87.4%76.3%78.0%120.0%272.8%312.6%157.0%10.2%
(Exports)42.3%41.9%16.8%187.5%251.6%338.8%140.8%-19.0%
Sales
Speed Reducers-12.3%10.3%75.0%53.3%77.1%128.8%73.5%50.4%
(Domestic)-8.5%12.5%85.0%71.3%66.0%124.5%82.9%49.7%
(Exports)-22.4%1.6%46.9%13.3%112.1%148.3%40.2%52.6%
Mechatronics-3.9%-20.6%8.9%24.9%22.6%42.8%19.2%27.5%
(Domestic)2.3%-30.0%5.5%19.0%7.0%33.3%23.8%18.2%
(Exports)-13.1%5.5%14.0%35.5%49.6%60.3%12.6%42.1%
Total-10.9%3.7%60.5%48.4%67.3%114.9%65.5%47.1%
(Domestic)-7.0%4.1%70.1%62.8%56.9%112.4%76.1%46.0%
(Exports)-20.2%2.6%37.2%17.6%96.4%124.4%33.4%50.3%
QoQ
Orders
Speed Reducers-6.8%2.7%55.1%74.9%44.7%15.3%-10.9%-33.1%
(Domestic)0.7%-3.8%61.0%54.6%68.4%8.1%-5.7%-35.8%
(Exports)-30.4%32.5%35.4%154.7%-12.0%48.0%-28.3%-21.5%
Mechatronics-15.5%4.0%16.2%43.6%20.7%34.3%-9.3%-23.2%
(Domestic)-17.9%3.2%4.1%34.5%33.7%0.9%0.4%-18.8%
(Exports)-11.1%5.5%36.8%55.5%6.3%81.4%-16.8%-27.4%
Total-8.5%2.9%47.8%70.6%41.8%17.2%-10.7%-31.9%
(Domestic)-2.5%-2.8%52.1%52.7%65.2%7.6%-5.3%-34.5%
(Exports)-25.4%24.2%35.7%128.6%-8.7%54.9%-25.5%-23.1%
Sales
Speed Reducers0.6%-10.8%38.7%23.2%16.2%15.3%5.2%6.8%
(Domestic)10.8%-4.1%32.2%21.9%7.4%29.7%7.7%-0.2%
(Exports)-22.2%-32.1%68.0%27.6%45.7%-20.5%-5.1%38.9%
Mechatronics5.8%-21.1%24.5%20.1%3.9%-8.1%3.9%28.5%
(Domestic)4.4%-19.5%12.8%25.4%-6.0%0.3%4.7%19.8%
(Exports)8.3%-23.9%46.1%12.6%19.6%-18.5%2.6%42.1%
Total1.5%-12.7%36.4%22.7%14.4%12.2%5.1%9.1%
(Domestic)9.8%-6.5%29.6%22.3%5.9%26.6%7.5%1.4%
(Exports)-16.3%-30.1%62.2%23.9%39.8%-20.1%-3.6%39.6%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.

Quarterly trends and results

CumulativeFY03/21FY03/22FY03/22
(JPYmn)Q1Q1–Q2Q1–Q3Q1–Q4Q1Q1–Q2Q1–Q3Q1–Q4% of Est.FY Est.
Sales9,31817,70326,64637,03411,90126,34141,55657,088101.0%56,500
YoY-20.0%-18.0%-9.9%-1.2%27.7%48.8%56.0%54.1%52.6%
Gross profit3,0515,5058,57412,5834,95110,15016,43322,426
YoY-31.7%-25.7%-9.9%4.8%62.3%84.4%91.7%78.2%
Gross profit margin32.7%31.1%32.2%34.0%41.6%38.5%39.5%39.3%
SG&A expenses2,8365,5868,45811,7173,1676,6239,91913,686
YoY-4.2%-7.3%-3.4%-3.9%11.7%18.6%17.3%16.8%
SG&A ratio30.4%31.6%31.7%31.6%26.6%25.1%23.9%24.0%
Operating profit150-212-838661,7843,5276,5148,740106.6%8,200
YoY-89.6%---1,089.4%--909.3%847.0%
Operating profit margin1.6%-1.2%-0.3%2.3%15.0%13.4%15.7%15.3%14.5%
Recurring profit247852201,3671,7083,5666,7529,108111.1%8,200
YoY-82.7%-94.3%-74.3%478.2%591.3%4,095.0%2,968.9%566.4%499.9%
Recurring profit margin2.7%0.5%0.8%3.7%14.3%13.5%16.2%16.0%14.5%
Net income116-16-166621,1222,2194,4726,644120.8%5,500
YoY-63.2%---867.1%--902.9%730.2%
Net margin1.2%-0.1%-0.1%1.8%9.4%8.4%10.8%11.6%9.7%
QuarterlyFY03/21FY03/22
(JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,3188,3858,94410,38811,90114,44015,21515,532
YoY-20.0%-15.5%11.7%31.4%27.7%72.2%70.1%49.5%
Gross profit3,0512,4543,0694,0094,9515,1996,2835,993
YoY-31.7%-16.7%46.1%61.0%62.3%111.8%104.7%49.5%
Gross profit margin32.7%29.3%34.3%38.6%41.6%36.0%41.3%38.6%
SG&A expenses2,8362,7502,8723,2593,1673,4563,2973,767
YoY-4.2%-10.3%5.2%-5.3%11.7%25.7%14.8%15.6%
SG&A ratio30.4%32.8%32.1%31.4%26.6%23.9%21.7%24.3%
Operating profit150-3621299491,7841,7432,9862,226
YoY-89.6%---1,089.4%-2,215.0%134.6%
Operating profit margin1.6%-4.3%1.4%9.1%15.0%12.1%19.6%14.3%
Recurring profit247-1621351,1471,7081,8583,1862,357
YoY-82.7%---591.3%-2,259.9%105.5%
Recurring profit margin2.7%-1.9%1.5%11.0%14.3%12.9%20.9%15.2%
Net income116-132-6781,1221,0972,2542,172
YoY-63.2%---867.1%--220.1%
Net margin1.2%-1.6%0.0%6.5%9.4%7.6%14.8%14.0%
Source: Shared Research based on company data
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
By regional segment
By segmentFY03/21FY03/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,3188,3858,94410,38811,90114,44015,21515,532
YoY-20.0%-15.5%11.7%31.4%27.7%72.2%70.1%49.5%
Japan5,0354,5705,5256,9837,6579,5529,80610,259
YoY-14.5%-4.4%48.6%65.2%52.1%109.0%77.5%46.9%
North America1,3071,3711,3081,1591,3721,6131,7561,903
YoY-28.4%-22.7%1.3%-14.2%5.0%17.6%34.3%64.2%
Europe2,9762,4432,1112,2452,8723,2763,6533,370
YoY-24.4%-27.6%-29.5%-3.6%-3.5%34.1%73.1%50.1%
Recurring profit247-1621351,1471,7081,8583,1862,357
YoY-82.7%---591.3%-2,259.9%105.5%
Recurring profit margin2.7%-1.9%1.5%11.0%14.3%12.9%20.9%15.2%
Japan9125151,1472,2362,5292,7353,4913,134
YoY-35.7%24.4%-223.4%177.4%431.7%204.3%40.2%
Recurring profit margin18.1%11.3%20.8%32.0%33.0%28.6%35.6%30.6%
% of total369.2%-317.6%849.7%195.0%148.1%147.2%109.6%133.0%
North America98106485858156246241
YoY-73.2%-77.3%-42.8%50.5%-40.6%47.3%410.0%315.1%
Recurring profit margin7.5%7.7%3.7%5.0%4.2%9.7%14.0%12.7%
% of total39.6%-65.4%35.8%5.1%3.4%8.4%7.7%10.2%
Europe-47-178-372-324-58-52314-32
YoY--------
Recurring profit margin-1.6%-7.3%-17.6%-14.4%-2.0%-1.6%8.6%-0.9%
% of total-18.9%110.1%-275.4%-28.2%-3.4%-2.8%9.8%-1.3%
Adjustments-715-605-688-823-822-981-865-987
Source: Shared Research based on company data
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.
Orders
OrdersFY03/21FY03/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Orders9,7807,6199,78514,49122,92125,06726,73020,105
YoY27.4%36.6%23.7%63.4%134.4%229.0%173.2%38.7%
JapanTotal4,8604,5736,79810,43617,04618,60118,00811,586
YoY52.8%73.9%59.3%112.4%250.7%306.7%164.9%11.0%
Speed Reducers4,1563,8576,0239,43615,63917,16916,56210,363
YoY71.1%83.0%69.7%133.3%276.3%345.1%175.0%9.8%
Mechatronics7047167751,0001,4071,4331,4461,224
YoY-6.4%37.0%7.8%15.3%99.7%100.0%86.7%22.4%
North AmericaTotal1,8541,0491,0931,3092,5722,5514,0644,110
YoY25.5%40.5%-12.0%-13.3%38.7%143.0%271.7%214.0%
Speed Reducers9075296465471,2561,3791,9471,878
YoY-5.3%35.1%-2.7%-46.0%38.5%160.8%201.4%243.4%
Mechatronics9485214477621,3161,1722,1172,232
YoY81.9%46.4%-22.6%53.3%38.9%125.0%373.2%193.0%
EuropeTotal3,0651,9971,8942,7463,3033,9154,6584,408
YoY1.6%-9.3%-21.0%12.3%7.8%96.1%145.9%60.5%
Speed Reducers2,3471,0941,3481,7402,5883,0133,4213,092
YoY14.6%-29.4%-31.3%-3.1%10.2%175.4%153.7%77.7%
Mechatronics7189035461,0067169031,2371,316
YoY-25.7%38.3%25.6%54.7%-0.3%0.0%126.7%30.7%
Order backlog9,1748,1819,40613,41524,74135,11746,04450,346
YoY-27.8%1.6%22.3%49.8%169.7%329.3%389.5%275.3%
JapanTotal2,8982,7864,0477,37816,71325,48133,01433,727
YoY-32.4%41.7%69.8%135.9%476.7%814.8%715.7%357.1%
Speed Reducers2,6072,4983,6866,90615,65823,81630,79231,420
YoY-31.3%40.7%72.0%147.0%500.7%853.5%735.3%355.0%
Mechatronics2922883614731,0551,6652,2212,307
YoY-41.0%51.6%49.8%42.6%261.8%478.8%515.6%387.8%
North AmericaTotal2,6502,3032,0502,1493,5404,4756,8879,328
YoY-15.9%14.9%5.8%1.3%33.6%94.4%235.9%334.0%
Speed Reducers1,5441,2521,1061,0121,6342,1413,0644,011
YoY-29.3%-10.6%-14.1%-31.5%5.8%71.0%176.9%296.4%
Mechatronics1,1061,0509441,1381,9072,3343,8235,318
YoY14.6%74.5%45.4%76.4%72.3%122.3%305.1%367.4%
EuropeTotal3,6263,0933,3093,8874,4885,1616,1437,291
YoY-31.2%-24.3%-1.8%4.8%23.8%66.9%85.7%87.6%
Speed Reducers2,8702,3212,3992,5743,1363,7494,4645,087
YoY-18.7%-15.1%-4.6%-13.5%9.3%61.5%86.0%97.6%
Mechatronics7567719091,3131,3511,4121,6802,204
YoY-56.6%-42.9%6.5%79.0%78.8%83.1%84.7%67.8%
Source: Shared Research based on company data
Production
ProductionFY03/21FY03/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Production8,7718,4718,68710,37211,75315,02915,13614,988
YoY-18.0%-19.2%25.8%36.2%34.0%77.4%74.2%44.5%
JapanTotal5,8065,3536,1077,7978,61111,06810,83210,840
YoY-10.4%-14.0%49.8%49.5%48.3%106.8%77.4%39.0%
Speed Reducers4,8724,3725,1406,5947,2969,6279,5049,521
YoY-2.2%-11.1%66.5%63.2%49.7%120.2%84.9%44.4%
Mechatronics9349819671,2031,3151,4421,3281,319
YoY-37.8%-24.7%-2.3%2.3%40.7%47.0%37.3%9.6%
North AmericaTotal9281,0699017038691,1201,3131,390
YoY-17.0%-25.8%-6.1%-19.4%-6.4%4.8%45.8%97.6%
Speed Reducers570629531371460618800785
YoY-26.1%-25.7%-21.3%-25.2%-19.3%-1.7%50.8%111.7%
Mechatronics358439370332409502513604
YoY3.1%-26.0%29.9%-11.7%14.1%14.2%38.6%81.8%
EuropeTotal2,0362,0491,6791,8712,2742,8402,9912,758
YoY-34.3%-27.2%-10.1%22.7%11.7%38.6%78.1%47.4%
Speed Reducers1,5671,5321,2471,3711,7842,1612,3452,170
YoY-31.4%-28.8%-1.0%39.4%13.8%41.1%88.1%58.3%
Mechatronics469517432500489679646588
YoY-42.3%-22.1%-28.8%-7.7%4.3%31.4%49.4%17.5%
Source: Shared Research based on company data
Sales
SalesFY03/21FY03/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,3188,3858,94410,38811,90114,44015,21515,532
YoY-20.0%-15.5%11.7%31.4%27.7%72.2%70.1%49.5%
JapanTotal5,0354,5705,5256,9837,6579,5529,80610,259
YoY-13.4%-3.6%48.9%65.6%52.1%109.0%77.5%46.9%
Speed Reducers4,3013,9524,8286,1046,8378,7368,9289,200
YoY-14.4%0.7%58.4%77.3%59.0%121.1%84.9%50.7%
Mechatronics7356196978798208168781,059
YoY-6.7%-24.3%5.0%13.3%11.6%31.9%26.0%20.5%
North AmericaTotal1,3071,3711,3081,1591,3721,6131,7561,903
YoY-28.7%-22.9%1.0%-14.3%5.0%17.6%34.3%64.2%
Speed Reducers8268037696177178721,0661,029
YoY-27.0%-26.2%-6.8%-21.9%-13.1%8.5%38.5%66.9%
Mechatronics482568538542655741690874
YoY-31.5%-17.7%14.8%-3.6%36.0%30.5%28.2%61.2%
EuropeTotal2,9762,4432,1112,2452,8723,2763,6533,370
YoY-25.7%-28.3%-29.6%-3.9%-3.5%34.1%73.1%50.1%
Speed Reducers2,3131,7051,4861,6162,1502,4292,7072,566
YoY-17.8%-27.4%-29.1%8.1%-7.1%42.5%82.1%58.8%
Mechatronics663738625630722847947803
YoY-44.3%-30.1%-30.7%-25.2%9.0%14.7%51.6%27.6%
Source: Shared Research based on company data
Sales by region (by destination)
Sales by regionFY03/21FY03/22
Quarterly (JPYmn)Q1Q2Q3Q4Q1Q2Q3Q4
Sales9,3188,3858,94410,38811,90114,44015,21515,532
YoY-20.0%-15.5%11.7%31.4%27.7%72.2%70.1%49.5%
Japan3,9793,7174,8875,8396,2557,7338,5268,666
YoY-4.5%4.7%72.6%66.4%57.2%108.0%74.4%48.4%
% of total42.7%44.3%54.6%56.2%52.6%53.6%56.0%55.8%
North America1,3071,3711,3081,1591,3721,6131,7561,903
YoY-28.4%-22.7%1.3%-14.2%5.0%17.6%34.3%64.2%
% of total14.0%16.4%14.6%11.2%11.5%11.2%11.5%12.3%
Europe2,9762,4432,1112,2452,8723,2763,6533,370
YoY-24.4%-27.6%-29.5%-3.6%-3.5%34.1%73.1%50.1%
% of total31.9%29.1%23.6%21.6%24.1%22.7%24.0%21.7%
Other regions1,0578536371,1451,4011,8191,2801,593
YoY-38.6%-30.6%-28.2%59.4%32.6%113.2%100.9%39.2%
% of total11.3%10.2%7.1%11.0%11.8%12.6%8.4%10.3%
Source: Shared Research based on company data

Full-year FY03/22 results (out May 13, 2022)

Full-year results summary

Full-year FY03/22 results were as follows:

  • Sales: JPY57.1bn (+54.1% YoY, versus company forecast of JPY56.5bn)
  • Operating profit: JPY8.7bn (roughly 10.1x YoY, forecast JPY8.2bn)
    • Operating margin 15.3% (+13.0pp YoY, forecast 14.5%)
  • Recurring profit: JPY9.1bn (roughly 6.7x YoY, forecast JPY8.2bn)
  • Net income attributable to owners of the parent: JPY6.6bn (roughly 10.0x YoY, forecast JPY5.5bn)

EPS was JPY69.0. The company plans an annual dividend of JPY21.0 per share (versus JPY20.0 per share in FY03/21), for a dividend payout ratio of 30.4% (290.6% in FY03/21).

Both sales and profit surpassed the company's forecasts, driven by higher orders for mainstay reducers, mainly for the industrial robots sector (especially in China) and the SPE sector, which offset lackluster demand from the automotive sector. Operating profit grew roughly 10.1x YoY, on the back of the aforementioned growth in sales, as well as cost reductions and yen devaluation. However, OPM recovered no further than 15.3%, owing to higher depreciation costs accompanying capacity expansion, increased transportation costs, and growth in R&D expenditure. Back in FY03/19, before US-China trade tension escalated, HDSI had an OPM of 24.5%, and the five-year average for FY03/15–19 was 25.7%. 

Q4 (January–March 2022, three months) results summary 

Q4 FY03/22 (January–March 2022) results were as follows:

  • Sales: JPY15.5bn (+49.5% YoY)
  • Operating profit: JPY2.2bn (roughly 2.3x YoY)
    • OPM: 14.3% (+5.2pp YoY)
  • Recurring profit: JPY2.4bn (roughly 2.1x YoY)
  • Net income attributable to owners of the parent: JPY2.2bn (roughly 3.2x YoY)

On a quarterly (three-month) basis, sales and operating profit both increased YoY for the sixth consecutive quarter. Despite YoY growth in both sales and profit, OPM recovered no further than 14.3%, owing to higher depreciation costs, increased transportation costs, and growth in R&D expenditure.

Orders (non-consolidated) rose 1.0% YoY to JPY13.1bn in Q4. Although growth was maintained on a YoY basis, orders were down from JPY18.4bn in Q1 (April–Jun 2021), JPY21.5bn in Q2 (July–September 2021), and JPY19.2bn in Q3 (October–December 2021). Due in large part to seasonal factors, though, Q4 orders were the third highest for a single quarter.

Shared Research plans an update based on the forthcoming results briefing and contact with the company. 

FY03/23 company forecast

Cons.FY03/21FY03/22FY03/23
(JPYmn)1H2HFY1H2HFY1H Est.2H Est.FY Est.
Sales17,70319,33137,03426,34130,74757,08835,00040,00075,000
YoY-18.0%-10.4%-1.2%48.8%-54.1%32.9%8.0%31.4%
Gross profit5,5057,07812,58310,15012,27622,426--
YoY-25.7%-4.5%4.8%84.4%-78.2%---
Gross profit margin31.1%36.6%34.0%38.5%39.9%39.3%---
SG&A expenses5,5866,13111,7176,6237,06413,686--
YoY-7.3%1.7%-3.9%18.6%-16.8%---
SG&A ratio31.6%31.7%31.6%25.1%23.0%24.0%---
Operating profit-2121,0788663,5275,2138,7405,5007,50013,000
YoY--13.8%---909.3%55.9%766.1%48.7%
Operating profit margin-1.2%5.6%2.3%13.4%17.0%15.3%15.7%18.8%17.3%
Recurring profit851,2821,3673,5665,5429,1085,5007,50013,000
YoY-94.3%-13.5%478.2%4,095.0%-566.4%54.2%448.7%42.7%
Recurring profit margin0.5%6.6%3.7%13.5%18.0%16.0%15.7%18.8%17.3%
Net income-166786622,2194,4256,6443,5005,5009,000
YoY-358.4%---902.9%57.8%730.2%35.5%
Net margin-0.1%3.5%1.8%8.4%14.4%11.6%10.0%13.8%12.0%
Capital expenditures8351,1241,9594,074---
Depreciation3,6223,7677,3893,933---
R&D expense1,1741,2702,4441,372---
Source: Shared Research based on company data
Note: On May 14, 2021, the company announced revisions to its financial results for FY03/20. The figures in this table have been retroactively adjusted.

ParentFY03/21FY03/22FY03/23
(JPYmn)1H2HFY1H2HFY1H Est.2H Est.FY Est.
Sales (parent)10,04114,22324,26419,02522,09541,12025,20029,80055,000
YoY-4.6%53.6%22.6%89.5%120.0%69.5%32.5%56.6%33.8%
Operating profit4162,1572,5733,7444,6148,3584,5006,50011,000
YoY17.5%8,196.2%577.1%800.0%1,009.1%224.8%20.2%73.6%31.6%
Operating profit margin4.1%15.2%10.6%19.7%20.9%20.3%17.9%21.8%20.0%
Recurring profit5372,2272,7643,8324,8708,7024,7006,50011,200
YoY-20.9%1,217.8%225.9%613.6%806.9%214.8%22.7%69.6%28.7%
Recurring profit margin5.3%15.7%11.4%20.1%22.0%21.2%18.7%21.8%20.4%
Net income3881,4801,8682,6383,9076,5453,0004,5007,500
YoY53.4%--579.9%907.0%250.4%13.7%70.6%14.6%
Net margin3.9%10.4%7.7%13.9%17.7%15.9%11.9%15.1%13.6%
Capital expenditures2572885453,676---
Depreciation1,4041,4682,8721,586---
R&D expense8449631,8071,005---
Factors driving OP change YoY+62+1,803+2,193+3,744+4,614+6,201
Higher sales-263+2,722+2,459+4,845
Change in contribution margins-30-38-68+307
Higher fixed manufacturing costs and other costs+384-78+306-1,028
Higher SG&A expenses-29-475-504-796
Source: Shared Research based on company data

Overview of company forecast

HDSI released new guidance for FY03/23. Its forecast is as follows:

  • Sales of JPY75.0bn (+31.4% YoY)
  • Operating profit: JPY13.0bn (+48.7% YoY)
    • OPM: 17.3% (+2.0pp YoY)
  • Recurring profit: JPY13.0bn (+42.7% YoY)
  • Net income attributable to owners of the parent: JPY9.0bn (+35.5% YoY)

The company forecasts EPS of JPY93.5, and plans an annual dividend of JPY29.0 per share (versus a planned JPY21.0 per share for FY03/22), for a dividend payout ratio of 31.0% (30.4% in FY03/22).  

The company sees sales reaching a record-high JPY75.0bn (beating the previous high of JPY67.8bn in FY03/19), based on higher demand for reducers and the current order backlog. HDSI also expects operating profit to be the second highest in the company's history (at JPY13.0bn, versus a high of JPY16.6bn in FY03/19), but sees OPM remaining at 17.3% owing to higher depreciation costs accompanying capacity expansion and increases in other costs, as was the case in FY03/22. The projected OPM of 17.3% in FY3/23 is roughly 10pp lower than the record of 27.2% set in FY03/15. 

Shared Research plans an update based on the forthcoming results briefing and contact with the company. 

Geographical segments
By segmentFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Est.
Sales18,13121,08425,95128,27830,06954,34067,80937,48837,03456,500
YoY-10.1%16.3%23.1%9.0%6.3%80.7%24.8%-44.7%-1.2%52.6%
Japan15,36217,89922,53423,42825,49535,35145,32718,61322,114-
YoY-10.3%16.5%25.9%4.0%8.8%38.7%28.2%-58.9%18.8%-
North America2,7693,1843,4174,8504,5755,4826,8146,2415,145-
YoY-8.6%15.0%7.3%41.9%-5.7%19.8%24.3%-8.4%-17.6%-
Europe-----13,50715,66812,6359,776-
YoY------16.0%-19.4%-22.6%-
Recurring profit3,5764,8237,5257,8307,95911,94617,1852361,3678,200
YoY-18.7%34.9%56.0%4.0%1.6%50.1%43.9%-98.6%478.2%499.9%
Recurring profit margin19.7%22.9%29.0%27.7%26.5%22.0%25.3%0.6%3.7%14.5%
Japan4,1345,5238,0768,5708,87813,90917,2982,4884,809
YoY-13.1%33.6%46.2%6.1%3.6%56.7%24.4%-85.6%93.3%
Recurring profit margin26.9%30.9%35.8%36.6%34.8%39.3%38.2%13.4%21.7%
% of total115.6%114.5%107.3%109.5%111.5%116.4%100.7%1,052.6%351.9%
North America2952703657867056781,375955310
YoY-36.5%-8.4%35.3%115.5%-10.3%-3.8%102.8%-30.6%-67.5%
Recurring profit margin10.6%8.5%10.7%16.2%15.4%12.4%20.2%15.3%6.0%
% of total8.2%5.6%4.8%10.0%8.9%5.7%8.0%403.8%22.7%
Europe110100279511355541,750-800-921
YoY40.9%-9.6%179.7%-81.7%163.8%310.5%215.8%--
Recurring profit margin4.1%11.2%-6.3%-9.4%
% of total3.1%2.1%3.7%0.7%1.7%4.6%10.2%-338.6%-67.4%
Adjustments-963-1,070-1,195-1,578-1,759-2,913-2,959-2,406-2,832
Source: Shared Research based on company data
Key group company earnings
Main group companiesFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn)Act.Act.Act.Act.Act.Act.Act.Act.Act.Est.
US subsidiaries2,7683,1843,4174,8504,5765,5096,8566,2585,1506,400
YoY-8.6%15.0%7.3%41.9%-5.6%20.4%24.5%-8.7%-17.7%24.3%
Net income107130128269242241494364163600
YoY-29.6%21.5%-1.5%110.2%-10.0%-0.4%105.0%-26.3%-55.2%268.1%
Net margin3.9%4.1%3.7%5.5%5.3%4.4%7.2%5.8%3.2%9.4%
Harmonic AD1,7261,8872,1022,2412,3772,7813,3711,7791,7062,900
YoY-14.9%9.3%11.4%6.6%6.1%17.0%21.2%-47.2%-4.1%70.0%
Net income4154971411422453621434330
YoY-39.7%31.7%79.6%45.4%0.7%72.5%47.8%-96.1%142.9%870.6%
Net margin2.4%2.9%4.6%6.3%6.0%8.8%10.7%0.8%2.0%11.4%
China subsidiary1,5962,5822,2574,6444,0483,3302,3853,800
YoY-61.8%-12.6%105.8%-12.8%-17.7%-28.4%59.3%
Net income245306-36281194199104280
YoY-24.9%---31.0%2.6%-47.7%169.2%
Net margin15.4%11.9%-1.6%6.1%4.8%6.0%4.4%7.4%
Harmonic Drive SE6,3487,82910,0309,93310,20813,62315,95212,7449,81813,400
YoY-18.0%23.3%28.1%-1.0%2.8%33.5%17.1%-20.1%-23.0%36.5%
Net income9459141,4377611,0642,0442,3314411991,800
YoY10.8%-3.3%57.2%-47.0%39.8%92.1%14.0%-81.1%-54.9%804.5%
Net margin14.9%11.7%14.3%7.7%10.4%15.0%14.6%3.5%2.0%13.4%
USD/JPY79.897.7105.9121.1108.8112.2110.4109.1106.8109.5
CNY/JPY--17.219.216.416.616.715.815.517.0
EUR/JPY102.6129.7140.4134.3120.3126.7130.4122.1121.8130.0
Source: Shared Research based on company data
Note: Net income of US subsidiary is after deduction of minority interests while that of Harmonic Drive SE is before deduction of minority interests.
Parent company sales by application
By applicationFY03/13FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22
(JPYmn)ParentParentParentParentParentParentParentParentParentParent
Sales (parent)16,15918,58523,03023,74126,74838,98249,24919,78824,26441,000
YoY-10.6%15.0%23.9%3.1%12.7%45.7%26.3%-59.8%22.6%69.0%
Semiconductor production equipment1,6902,2282,1442,6662,9374,0345,7952,2172,776
YoY-26.5%31.8%-3.8%24.3%10.2%37.4%43.7%-61.7%25.2%
% of total10.5%12.0%9.3%11.2%11.0%10.4%11.8%11.2%11.4%
Flat panel display equipment9361,4991,3171,5532,1692,5962,811640769
YoY-25.6%60.1%-12.1%17.9%39.7%19.7%8.3%-77.2%20.2%
% of total5.8%8.1%5.7%6.5%8.1%6.7%5.7%3.2%3.2%
Industrial robot applications5,8836,0569,9409,97912,52521,34726,2658,88513,110
YoY-10.8%2.9%64.1%0.4%25.5%70.4%23.0%-66.2%47.6%
% of total36.4%32.6%43.2%42.0%46.8%54.8%53.3%44.9%54.0%
Gear boxes (for electric motor manufacturers)1,0791,3851,4541,3761,4352,0442,4131,1221,319
YoY-17.8%28.4%5.0%-5.4%4.3%42.4%18.1%-53.5%17.6%
% of total6.7%7.5%6.3%5.8%5.4%5.2%5.3%5.7%5.4%
Machine tools1,2321,2851,5761,9721,6912,0242,6321,2611,160
YoY-7.6%4.3%22.6%25.1%-14.2%19.7%30.0%-52.1%-8.0%
% of total7.6%6.9%6.8%8.3%6.3%5.2%4.9%6.4%4.8%
Oil-drilling equipment8439931,449384168521923238134
YoY41.9%17.8%45.9%-73.5%-56.3%210.1%77.2%-74.2%-43.7%
% of total5.2%5.3%6.3%1.6%0.6%1.3%1.9%1.2%0.6%
Optomechanical equipment5336506686888561,053985396485
YoY5.4%22.0%2.7%3.1%24.3%23.0%-6.4%-59.8%22.6%
% of total3.3%3.5%2.9%2.9%3.2%2.7%2.0%2.0%2.0%
Measuring test instrument291353345356374390492198243
YoY-19.5%21.4%-2.2%3.1%5.2%4.1%26.3%-59.8%22.6%
% of total1.8%1.9%1.5%1.5%1.4%1.0%1.0%1.0%1.0%
Printing presses162167138166134156295119146
YoY-10.6%3.5%-17.4%20.3%-19.5%16.6%89.5%-59.8%22.6%
% of total1.0%0.9%0.6%0.7%0.5%0.4%0.6%0.6%0.6%
Cargo transporters657469475339492024
YoY-28.5%15.0%-7.1%-31.3%12.7%-27.1%26.3%-59.8%22.6%
% of total0.4%0.4%0.3%0.2%0.2%0.1%0.1%0.1%0.1%
Other3,4463,8933,9294,5524,4054,7796,5884,6934,098
YoY-2.7%13.0%0.9%15.9%-3.2%8.5%37.9%-28.8%-12.7%
% of total21.3%20.8%17.0%19.2%16.5%12.2%13.4%23.7%16.9%
Source: Shared Research based on company data
Note: Full-year sales figures are calculated using quarterly or half-year sales or sales weightings, so may differ from company materials.

Historical performance vs. estimates

Results vs. Initial Est.FY03/14FY03/15FY03/16FY03/17FY03/18FY03/19FY03/20FY03/21FY03/22FY03/23
(JPYmn)Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Cons.Est.
SalesInitial Est.21,00024,50029,00030,00049,50068,50042,000-52,00075,000
Act.21,08425,95128,27830,06954,34067,80937,48837,03457,088
Results vs. Initial Est.0.4%5.9%-2.5%0.2%9.8%-1.0%-10.7%-9.8%
Operating profitInitial Est.4,7006,4007,8008,20012,00017,4001,000-6,60013,000
Act.4,6687,0677,6187,81412,31616,624-1958668,740
Results vs. Initial Est.-0.7%10.4%-2.3%-4.7%2.6%-4.5%-119.5%-32.4%
Recurring profitInitial Est.4,9306,6008,4008,90012,00017,6001,000-6,70013,000
Act.4,8237,5257,8307,95911,94617,1852361,3679,108
Results vs. Initial Est.-2.2%14.0%-6.8%-10.6%-0.4%-2.4%-76.4%-35.9%
Net incomeInitial Est.2,9004,2005,5006,0007,30011,50050-4,7009,000
Act.2,9944,8345,00219,7327,77711,322-1,0956626,644
Results vs. Initial Est.3.2%15.1%-9.1%228.9%6.5%-1.5%--41.4%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: On May 14, 2021, the company announced revisions to its past financial results. The figures provided in this table reflect retroactive changes.

Medium-term management plan

Medium-term management planFY03/21FY03/22FY03/243-year
(JPYmn)FYTargetsTargetsCAGR
Sales37,03452,00070,000+23.6%
YoY-1.2%40.4%
Japan22,11434,50047,500+29.0%
YoY18.8%56.0%
North America5,1455,5007,500+13.4%
YoY-17.6%6.9%
Europe9,77612,00015,000+15.3%
YoY-22.6%22.8%
Operating profit8666,60015,000+158.7%
YoY-662.2%
Operating profit margin2.3%12.7%21.4%
Net income6624,70010,500+151.2%
YoY-609.4%
Net margin1.8%9.0%15.0%
Source: Shared Research based on company data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: On August 6, 2021, the company announced a revision to its full-year FY03/22 earnings forecast. The table above reflects figures as of May 14, 2021. 

Overview of medium-term management plan and company status post-announcement

On May 14, 2021, the company announced a new medium-term management plan covering three years, FY03/22–24. For FY03/24, the last year, the company targets sales of JPY70.0bn and operating profit of JPY15.0bn. 
However, with the upward revision of the forecast for FY03/22 at the time of Q1 results, the plan is on track to being achieved roughly one year ahead of schedule. The medium-term plan does not make use of a rolling approach where a new yearly update is added every term. As such, Shared Research understands that the current situation may lead to inconsistencies between the medium-term plan and the latest results.

In October 2021, five months after the announcement of the current medium-term management plan in May 2021, the company announced that it would increase the production capacity of its mainstay product, the Harmonic Drive strain wave gearing system, in Japan. The company plans to invest approximately JPY6.5bn between March and August 2022 to increase production capacity at the Ariake Plant (Nagano Prefecture, Japan) from the current level of 150,000 units per month to 220,000 units per month (based on the combined production capacity of the Ariake Plant and Hotaka Plant after August 2022). The breakdown of the capacity increase (70,000 units/month) is 40,000 units/month for industrial machinery and 30,000 units/month for automotive applications.

The current medium-term management plan does not include any not planned any significant capital investment to increase production capacity. Shared Research expects the current mid-term plan to be updated to reflect the announcement of results for FY03/22 and the impact of planned increase in the domestic capacity (scheduled for May 2022). 

Shared Research wrote the section below in response to the current medium-term management plan, which was released in May 2021. As mentioned above, the company's medium-term management plan remains active, even though there is a divergence from current results. We have decided to leave it as is for the time being, with a view to comparing and verifying it against the previous one when HDSI next reviews it. When the company releases a revised plan, it will be updated right away.

Recap of previous medium-term plan (announced in May 2018)

The current medium-term plan was re-written in light of the version released in May 2018 having been abandoned part-way through. Since it includes related factors, we will first review the content and results of the previous medium-term plan.

On May 11, 2018, the company announced a three-year medium-term plan covering FY03/19–21. It set the plan to end in FY03/21, mindful that 2020 was its 50th anniversary. When it formulated the plan, orders were strong and continued to outstrip the company’s existing production capacity. In fact, the FY03/18 results announcement coinciding with the plan announcement marked the fifth consecutive year of sales and operating profit growth, with sales of JPY54.3bn (+80.7% YoY) and operating profit of JPY12.3bn (+57.6% YoY). Results significantly exceeded forecasts announced with the medium-term plan in May 2015, with sales of JPY54.3bn (initial forecast: JPY35.0bn) and operating profit of JPY12.3bn (initial forecast: JPY9.5bn). 

In light of this earnings growth and expectations of another record profit in FY03/19, the company unveiled a growth oriented medium-term plan in May 2018. It outlined the following core strategies: 1) To significantly increase global production capacity; 2) To improve group company capabilities and strengthen all-around ability; 3) To increase customer satisfaction by improving QCDS; 4) To strengthen the company’s management base; and 5) To lay the foundations for future expansion.

The plan included FY03/21 (final year) targets of JPY100.0bn in sales (three-year CAGR of 22.5%), JPY26.0bn in operating profit (27.3%), OPM of 26%, and JPY17.0bn in net income (28.2%). This projected sales to increase by 84% and operating profit to more than double in the three years from FY03/18. The company thought these figures were eminently achievable at that time.

However, soon after the plan was launched (Q1 FY03/19), orders started turning downward with declines of greater than 50% YoY. This was the result of: 1) constrained and delayed capex-related demand (especially in China) amid the eruption of US-China trade friction and international political issues; 2) excess inventories at customers and distributors (which took over a year to clear); and 3) the impact of the COVID-19 pandemic (disrupting production activities).

Ultimately, in FY03/19, the first year of the previous plan, the company was able to achieve record sales and operating profit as it fulfilled its existing order books. However, in FY03/20, the full impact of falling orders started from Q1, and operating profit turned to the red in just a year amid a harsh earnings environment. Despite subsequent cost cuts the company missed its initial FY03/21 targets of sales of JPY100.0bn and operating profit of JPY26.0bn by a wide margin, posting sales of JPY37.0bn and operating profit of JPY866mn.

Expanded production capacity

As outlined, there was little sense of achievement in the previous medium-term plan, as the company missed initial targets and fell into operating losses in FY03/20, but there was solid progress in one area: capacity expansion. In order to meet robust demand, the company boosted output capacity for its mainstay strain wave gearing (Harmonic Drive®) product from 85,000 units monthly in April 2018 to 100,000 in 2019 (normal operating hours; 130,000 including overtime). It also built a new plant (Ariake Factory) with monthly capacity of 100,000 units for a total capacity of 200,000 (normal operating hours). It also lifted its capacity in Europe (Germany) from 10,000 units per month to 15,000. Ultimately, the company did not have a chance to boost output in line with the capacity increase in the previous medium-term plan, but established a solid platform for increased production. The company thinks it may have a chance to benefit from the increased production capacity in the new medium-term plan that began in May 2021 (see Medium-term management plan section for details).

Production capacity for strain wave gearing (Harmonic Drive®) and cross roller bearings